Business Loans in a Bad Economy by Philip Hochstein

When business loans are hard to get and interest rates are high,you may want to consider an intermediary to help your business get financing.

The truth is out there and it is not pretty. The Wall Street Journal on September 2, 2009 stated that the volumes of small business loans are down 38% from last year. But note that the WSJ of Nov. 4, 2008 stated that the loan volumes of SBA-backed loans was off in October 2008 by 50% from the year before! Put simply, businesses are not getting the funding that they need to survive.

On Bloomberg radio the first week of September 2009, there were commercials from a major bank telling business people the virtues of using their credit cards to get money for their businesses. Yet banks have recently acknowledged that they have  cut off credit across the board to many previously desirable consumers. The have also seriously reduced many lines available often without advanced notification.

Besides that, even if small business still have credit cards available, today’s interest rates are often approximately at a 20%  level. The banks  themselves however, are borrowing money from the government at almost interest free rates.

Finally, Federal Reserve figures state that where banks never sit on excess reserves, this year they are sitting on about $800 billion. Before Sept. 2008, they retained such reserves at next to $0 amounts. This is money that they are not loaning out to help the economy and our government is allowing it.  Furthermore, according to Market Watch of Sept. 5, 2009, the biggest banks still consider themselves overleveraged to the tune of nine trillion dollars. So do not expect institutional easement of loan restrictions to occur anytime soon.

So where can your business get funding to survive, or grow?

There are basically three types of business lenders: accounts receivable and factoring; asset based lending; and leasing.

The current Fall season is typically the second busiest period of the year for most businesses (Christmas season being the first). But as the August 4th WSJ indicated, many businesses are hard pressed to provide even normal inventory due to tighter credit. Additionally, CIT Group’s recent problems have seriously hampered many businesses that have depended on them.

As to asset-based lenders, even so-called “normal” sources have reverted to being “hard money” type lenders in terms of both interest rates and conditions offered. Leasing can be problematical in this economy, too. A  fabric printer recently told of one  that requested a 54% interest rate!

If instead of borrowing in such a market, you decide to find an equity partner, you should know that the market there has become just as tough. The summer started with the June 5th Wall Street Journal article saying that the venture capital market to small firms has not been hit so bad since the bubble had burst. Worse, this is after a previous year where the number of active venture capital firms had fallen 13%.

So again, what is a firm to do in such a marketplace? The answer is to not try to reinvent the wheel, but to hire a company at reasonable cost that specializes in finding funding sources custom tailored to specific situations.

One thought to end on – if you want to believe Washington that the recession is over and we have turned a corner, please remember those immortal words of Dr. Julius Klein, the Assistant Secretary of Commerce in a speech he gave on June 9, 1931 where he said that “The depression has ended… In July, up we go.” The following year, 1932, is generally considered the worst in the Depression.

Philip Hochstein is the CEO of CAPS Interactive and has been the Master Consultant for both venture capital and commercial real estate funding with the American Cash Flow Association. He has been involved in private venture capital funding for 25 years, is a member of the NAIOP national subcommittee for tax and finance and holds the government affairs chair for the New York City NAIOP chapter.

For more information on CAPS Interactive, call (702) 946 6737 or on the Web,

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